Written by

Shelley DuBois

The Tennessean

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Brad Smith is a fresh-faced man with huge blue eyes and dark eyebrows. He was typing furiously on a Lenovo laptop one October morning while sitting at the Frothy Monkey, a coffee shop on 12th Avenue South.

“I work all the time,” he said, smiling. “I might as well get some work done from here.”

Smith is the CEO and a co-founder of Aspire Health, a company launched in July that aims to bring down costs and improve the quality of end-of-life care. Nashville’s coffee shops are full of go-getters such as Smith who often work around the clock to help remake our nation’s health care system.

Combine Nashville’s history as a health care town, a relatively affordable cost of living and its growing reputation as a cool place to be, and the conditions are ripe for a new wave of enterprising health care executives.

They’ve spent time on the coasts, East or West, and have come to Nashville to try something bold. They have big plans — they don’t want to just participate in the health care industry, they want to reshape it.

Over the past decade, 65 percent of all of Nashville’s venture capital funding has been invested in health care companies, according to the Nashville Health Care Council’s venture capital report. It states: “In the aggregate, venture capital firms have poured nearly $1 billion ($950 million) into Nashville health care ventures from 2001 to 2011.”

Catalyst for ideas

Smooth rollout or not, the Affordable Care Act has started a shift in health care.

For example, it has started penalizing hospitals for excessive re­admissions of Medicare-eligible patients. But mostly, health care reform is a catalyst for the ideas these young leaders want to cultivate — more transparency in health care, and systems that reward quality over quantity.

This is not the same kind of health care that built this city. Nearly 50 years ago, the fresh-faced entrepreneurs in Nashville were building for-profit hospital systems. To be exact, Thomas Frist Sr. formed Hospital Corp. of America in 1968 on the principle that a hospital management company could buy underperforming facilities, run them better and make them profitable. Others came, too. In 1985, Community Health Systems was founded. LifePoint Hospitals was next, in 1999.

The new health care businessmen are different. They aren’t managing buildings or hospitals but are instead managing health care enrollment or treatment plans with the intent to provide high-quality products at more realistic prices.

The transition from the original Nashville health care companies to the new ones wasn’t so much of a sea change as an evolution, said Michael Burcham, president and CEO of Nashville’s Entrepreneur Center.

“I grew up in the first version of health care, because I spent many years at HCA,” Burcham said. “HCA has been spinning off companies and partnering with them for years.”

That culture has created a friendly environment for new businesses, Burcham added.

“The other piece of that is that big hospital companies and big insurance companies know change is coming. I think there is an inherent desire, all the way back to HCA and Community and LifePoint, to see this happen in Nashville. ... If it’s going to change, we’d much rather have it happen here with people we know.”

Helping hands

Many of these startups have help from long-standing members of Nashville’s health care community.

“I tell my friends that the community in Nashville is big enough to be really interesting and have lots of opportunities, but small enough that you actually know people,” Smith said. He should know — he connected with Tennessee power players early.

After receiving his undergraduate degree from Harvard in 2005, he worked for Sen. Bob Corker. Over 18 months, Smith said, he spent 140,000 miles worth of quality road-trip time with the Tennessee Republican. After completing his graduate degree at Oxford as a Rhodes scholar, Smith connected with former Sen. Bill Frist, a descendent of HCA’s founder, to work on a public education project.

A couple of years later, Smith pitched Frist on an idea the former senator had been considering already: how to improve care delivered at the end of patients’ lives. To try to solve this problem, Smith and Frist launched Aspire Health this past summer with the goal of creating a network of palliative care practices, each led by a physician, that treat patients in an outpatient setting whenever possible.

“What people want is to be comfortable. They want to be with their family. They want to be right with God,” Smith said. “Those are the things people care about — none of them want to die in a hospital.”

Yet many do. End-of-life care is a major cost burden on the health care system. According to the Centers for Medicare & Medicaid Services, the 5 percent of Medicare beneficiaries who die each year account for 25 percent of Medicare spending.

For Aspire, being in Nashville is critical for its trajectory, Smith said.

“I had never been in health care before I did this,” he said. “I’m solving problems every day that I’ve never solved before, but I always know somebody who has solved them.”

Finding what's fair

Other startup CEOs have been in the industry longer. Doug Ghertner, for example, has worked in health care for the past 15 years. He became CEO and president of Change Healthcare about 2 ½ years ago, leaving his position as senior vice president of client solutions for CVS Caremark.

Change Healthcare was started in 2007 by Christopher Parks.

“Both of his parents passed away within a short time of one another,” Ghertner said. “His mother said, ‘Look, Christopher, you’re going to get stuck with a bunch of bills. You’re going to have to figure out who to pay, how much to pay and was it fair.’ And that was sort of the genesis of this company — to help people determine what’s fair.”

“The premise is: How do we give people tools and resources so that they can make more-informed purchasing decisions?” Ghertner said.

Change’s toolbox includes notifying people about opportunities to save money on health care, based on their preferences.

Old firms fund new

Traditionally, people have been protected from the cost of their care, but that’s changing.

“Everything around what Change Healthcare is doing and what we’re doing is about raising awareness for Americans on how all this stuff works,” said Alex Tolbert, founder and CEO of Bernard Health, a health care advisory firm.

While Change aims to bring more transparency to the cost of certain procedures, Bernard aims to bring transparency to the cost of insurance. The company works with employers, too, but unlike Change, also works directly with consumers.

Bernard opened its first health insurance retail store in Nashville in 2010. This past spring, it raised $1.9 million in private funding to open more retail stores. The majority of that funding came from McNamara Family Ventures, an investment group run by Kevin McNamara, formerly CFO of HealthSpring, a Franklin-based managed care giant. It’s another example of traditional Nashville-area companies funding the new crop of entrepreneurs.

Outside help

Some new entrepreneurs, of course, have help from companies outside of Nashville. Take NaviHealth, another Nashville-based startup, which was co-founded by its current chairman, former Centers for Medicare & Medicaid Services Administrator Tom Scully, who is a partner at New York private equity firm Welsh, Carson, Anderson & Stowe. NaviHealth’s goal is to counsel patients via consultants about all the care patients receive after a hospital procedure.

This “post-acute” care traditionally has been managed by a series of doctors, nurses and other health care workers who often didn’t communicate well with one another. Each visit was billed as a discrete episode instead of being viewed as an entire arc of care. Executives at NaviHealth aim to change that.

NaviHealth wants to bring more transparency and quality into the industry, but its business model is different from the other new companies.

“To sell what we’re doing, we had to put our money where our mouth is and go out and take risk,” said Carter Paine, NaviHealth’s senior vice president of business development. When he says “take risk,” he means that NaviHealth will guarantee it can save money for its clients, including both insurers and providers.

“For us, that means to come in significantly under cost, because we go out there and we put in a lot of staff in the market, which is expensive,” said Paine. “We’re looking at reducing spending by anywhere from 15 to 30 percent, which is pretty unheard of in the health care spectrum.”

There’s real money in NaviHealth’s hands, according to co-founder and President Clay Richards. The company manages more than $300 million in client health care dollars, up from $125 million when it launched in early 2012.

Though NaviHealth is taking the most financial risk among this sample of entrepreneurs, any start-up based on a new paradigm is navigating uncharted waters.

“I’m young, I can work hard, go for it,” said Aspire’s Smith.

His peers are, too, he said.

“Look at Doug, Carter, me, Alex — everybody’s at a place in life where we see opportunity and we think it’s going to work out. But we’re all at a place in life where we can say, ‘Let’s just try.’ ”